Thursday, 19 May 2016

Be Careful What You Wish For: When a Breach of 'Contract A' May not be Worth Contesting - Specifier: April 2016

The Alberta Court of Queen’s Bench has recently issued yet
another Contract A/Contract B decision, but this one has an
interesting twist to it. In Elan Construction Limited v. South Fish
Creek Recreational Association (2015 ABQB 330), the Court
confirmed, if not strengthened, what we already knew about the
bidding process – that the Owner must evaluate all bids fairly,
consistently and in accordance with the stated evaluation criteria
and the reasonable expectations of bidders, and that exclusion
clauses will not save the Owner when they have clearly departed
from these obligations. However, despite successfully showing
that the Owner breached these obligations for Contract A, the
Contractor in this case learned that sometimes a win is not
always a win.

What happened?

In 2010, South Fish Creek Recreational Association (“Fish
Creek”), a collective group of non-profit sports and community
associations, decided to move forward with a project to add 2
additional ice surfaces and a multi-purpose room to an existing
recreation facility. The budget was approximately $19 million, and
the Consultant (Quinn Young Architects) prepared an Invitation
to Bid and Instructions to Bidders for the project. Only pre-qualified
bidders were invited to bid, which included, among others,
Elan Construction Limited (“Elan”) and Chandos Construction
Ltd. (“Chandos”).

To alleviate Fish Creek’s concerns about roping itself into a
project using a contractor with a shoddy reputation, the Consultant
outlined four criteria in the Instructions that would form the
basis of the bid evaluation: price, completion date, experience
and references. Each category was assigned a specific number of
points for evaluation purposes.

Ultimately, the project was awarded to Chandos, and Elan
voiced its protest, claiming that the project was awarded based
on criteria not disclosed in this evaluation matrix. As a result,
Fish Creek found themselves heading to the courthouse for an
alleged breach of Contract A.

The Court agreed with Elan, finding that Fish Creek did, in fact,
significantly depart from the evaluation criteria outlined in the
Instructions, specifically:On completion date:

While the Invitation bolded August 1, 2011 as the desired
substantial completion date, the Consultant internally split
the points in this section between substantial completion
date and date for completion of deficiencies. Then, he created
a complex formula for awarding these points. He first
excluded several bidders from the completion date analysis
(one for being an ‘outlier’ from the rest of the dates, and others
for unexplained reasons), and used the remaining dates
to create an average completion date, which was used as a
baseline for awarding points to the remaining bidders. The
same analysis was applied to the points for the deficiencies
completion date. None of this, the Court explained, was communicated
to the potential bidders, and the Court held that
the combination of all these actions actually worked against
Elan, who reasonably assumed that the highest points would
be awarded to those who could commit or come closest to
the August 1 date.

On experience:

In awarding points, Fish Creek placed considerable weight
specifically on arena building and LEED experience, though
neither of these were referenced in the bid documents.

Following submission of the bids, Fish Creek decided to conduct
interviews with Elan and Chandos, though this requirement
was not disclosed in the bid documents either. Adding
further insult to injury, Elan was informed that the interview
must take place on August 18, despite the fact that Elan’s site
superintendent and project manager were unable to attend
on those dates.

And, just prior to the interview, Chandos substituted the site
superintendent shown in its bid with a ‘ringer’ in the arena
building department, and as anticipated, his references and
qualifications proved quite charming to Fish Creek during the
interview process. Given that amendments to the bids were
only allowed prior to the bid closing date, the Court found
this substitution to be a significant breach that could not be
passed off as an ‘informality’ waived by the exclusion clauses
in the bid documents.

Naturally, Fish Creek argued that their exclusion and privilege
clauses in the bid documents were wide enough to provide a full
defence to any breaches claimed by Elan, particularly because they
required Elan to “waive any right to contest any legal proceedings
regarding the decision of the Owner to award points under
the criteria noted below.” However, the Court disagreed, and
re-affirmed that such clauses do not detract from the Owner’s
obligation to treat bidders fairly and to disclose all criteria that
will be used to evaluate the bids.

As a result, the Court confirmed that Fish Creek did, in fact,
breach Contract A. And, the surrounding facts clearly supported
Elan’s claim that, but for Fish Creek’s breaches, Elan would have
been awarded the contract for the project.

Before you pop the champagne…

Let’s hope that Elan read the Court’s decision from back to front,
as it would have saved them from the inevitable letdown in the
damages analysis undertaken by the Court. Anyone who has
spent $100 at the fair throwing baseballs at milk jugs, only to be
presented with a one-eyed stuffed bear as the prize, will have a
taste of Elan’s bitter disappointment in this department.

Elan presented the Court with a ‘lost profit’ damage calculation
using their historical figures, which supported a 5% profit margin
on similar projects. Their lost profit on the project, they argued,
was approximately $700,000.

But the Court reminded them that a damage award must place
them in the same position as if the breach had not occurred. And
what position would that be? Well:

One of Elan’s listed subcontractors had actually underestimated
the scope of work required, and on the evidence presented,
the Court found that Elan would have been forced to
absorb at least some of the cost associated with this error.

Both Elan and Chandos had listed the same masonry and paving
subcontractors in their bids. Chandos testified that it incurred
additional cost on the project to replace both of these
subcontractors (the former because they were deemed ‘too
high risk’ to contract with, and the latter because they fell into
receivership). The Court was persuaded that Elan could not
have escaped these additional costs either.

Chandos suffered severe losses due to unexpected weather
conditions, as 2010 just happened to be an unusually cold and
early winter in Calgary. Based on the evidence presented, the
Court found that Elan would also have incurred these inevitable
costs.

Finally, there were major delays on the project due to various
unanticipated design issues, all of which proved costly for
Chandos. Once again, the Court found no reason why Elan
would have escaped similar costs of this nature.

All things considered, Chandos provided evidence showing that
it had actually suffered a substantial loss on the project, and the
Court found that Elan, too, would have incurred a substantial
loss as opposed to a profit had they been awarded the contract
instead. So, while Elan celebrated its successful breach of Contract
A claim, the celebration quickly turned sour when the Court
awarded them nominal damages of $1,000.

What can we learn from this?

Consultants should keep this case in mind when preparing bid
documents and evaluating submitted bids. Specifying rigid evaluation
measurements may prove dangerous, as the Courts will scrutinize
these criteria closely to ensure the ‘integrity of the bidding
process’ is upheld at all times.

And while its unsettling to believe that you were treated unfairly
during a bidding process, Contractors should put careful thought
into the hypothetical outcome of the project had it been rightfully
awarded to them. In other words, be careful what you wish
for – you just might get it.

1 comment:

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